Published: | Updated:
Andy Burnham must cut the size of the state rather than increase taxes or borrowing to fund defence spending, the International Monetary Fund has warned.
The IMF said the UK government faces 'difficult trade-offs' between social spending and funding defence.
Britain is committed to reaching the Nato defence spending target of 3.5 per cent of GDP by 2035.
This year the UK is spending 2.7 per cent and must increase its investment in the Armed Forces by tens of billions annually to satisfy its security partners, particularly the United States.
Labour ministers, including the Prime Minister Andy Burnham and Chancellor John Healey, have pledged to set out a path towards 3.5 per cent as part of a spending review next year.
Asked whether Britain should raise taxes or cut other spending, IMF fiscal affairs chief Rodrigo Valdes called for an 'urgent' discussion over the country's choices.
He said: 'The space for a lot more revenues is not easy. Less spending [will be] part of the new pressures that you will have from different sources.'
According to IMF forecasts, the UK is already raising taxes faster than any other administration in the Western world. Mr Valdes also warned against Britain borrowing more money to make ends meet.
Andy Burnham must cut the size of the state rather than increase taxes or borrowing to fund defence spending, the International Monetary Fund has warned
He said: 'Debt spending will be very persistent. Defence spending will be persistent.
'So, even if you accommodate temporary risk with debt, you have to be prepared at some point to recognise that debt cannot forever finance this part.'
Another senior IMF figure, the managing director Kristalina Georgieva, warned that international bankers and investors were already 'sensitive' about increases in UK borrowing costs and fiscal policy.
She urged the UK to 'stay the course' and continue to reduce its debts in order to 'reaffirm confidence in the direction of travel'.
Ms Georgieva said: 'It is not just a systemically important, significant economy, but London is one of the capitals in the world for the finance community and traditionally we have seen more attention in relative terms in the UK to what the Government is doing, what is happening, a bit more sensitivity.'
On Wednesday night, former head of the British Army Lord Dannatt blasted Labour for sticking to its plans to put welfare before preparing for likely warfare against Russia.
The ex-general, who served from 1971 to 2009, told the Daily Mail: 'This is a somewhat surprising intervention by the IMF but a welcome one.
At least the IMF recognises the security threats we face even if our government 'refuses to do so.'
The Conservatives have committed to funding higher defence spending through welfare cuts, including reimposing the two-child benefit cap, reforming housing benefit and ending VAT exemptions for cars bought using disability benefits.
However, Mr Burnham has insisted that national security 'can't come at the expense of social security'.
Repeated raids on UK households and firms are expected to push Britain's tax burden to a peace-time high of 41.9 per cent of GDP by the start of the next parliament, up from 38.2 per cent at the start of 2025, shortly after Labour took power.
The rapid increase means UK taxes are on course to rise faster than in any other developed economy.
Ms Georgieva welcomed 'decisive' efforts to reduce debt. However, she said it was important for Britain to stick to this plan.
Since Labour returned to office in 2024 defence spending has risen from 2.3 per cent of GDP to 2.7 per cent. But those percentages remain roughly half what the country was spending at the end of the Cold War.